Outsourcing decision affected by opportunity costs
Mulga Electronics currently produces the shipping containers it uses to deliver the electronics products it sells. The monthly cost of producing 9,000 containers follows.
|
Unit level materials |
$ 5,000 |
|
Unit level labor |
5,500 |
|
Unit level overhead |
3,500 |
|
Product level costs* |
9,000 |
|
Allocated facility level costs |
22,000 |
Omar Container Company has offered to sell comparable containers to Mulga for $2.25 each.
Required
a. Should Mulga continue to make the containers? Support your answer with appropriate computations.
b. Mulga could lease the space it currently uses in the manufacturing process. If leasing would produce $9,000 per month, would your answer to Requirement a be different? Explain.